Cancellation of Debt - An Unwanted Surprise

[gjampol]

What is the name of your state (only U.S. law)? CA

Five days after I efiled my federal tax returns (I got a refund eight days later) I received a 1099-C from a creditor who cancelled my $8,600 debt. I suppose that I now have to file an amended return, but, because my liabilities far exceed my assets, I am declaring involvency and should not have to pay taxes on the cancelled debt.

Most of the liabilities are charged-off debts from other creditors, which they still can collect.

But there is something fishy about the 1099-C. The cancellation is dated 4/08, yet the creditor continued to send me collection letters until 10/08.

I'ver also challenged the legitimacy of the debt by contacting two credit reporting agencies.

I'll repored the cancellation amount on Form 982, but there doesn't seem to be a place on Form 1040 to deduct the $8,600.

Isn't there somewhere on the 1040 where I can deduct the $8,600? Not even my tax preparation software (TaxCut) is helpful.

Has anyone else been in the same position?

 

[Antigone*]

What is the name of your state (only U.S. law)? CA

Five days after I efiled my federal tax returns (I got a refund eight days later) I received a 1099-C from a creditor who cancelled my $8,600 debt. I suppose that I now have to file an amended return, but, because my liabilities far exceed my assets, I am declaring involvency and should not have to pay taxes on the cancelled debt.

Most of the liabilities are charged-off debts from other creditors, which they still can collect.

But there is something fishy about the 1099-C. The cancellation is dated 4/08, yet the creditor continued to send me collection letters until 10/08.

I'ver also challenged the legitimacy of the debt by contacting two credit reporting agencies.

I'll repored the cancellation amount on Form 982, but there doesn't seem to be a place on Form 1040 to deduct the $8,600.

Isn't there somewhere on the 1040 where I can deduct the $8,600? Not even my tax preparation software (TaxCut) is helpful.

Has anyone else been in the same position?

Because you never paid the debt-claim in full, the IRS can treat a cancellation of a debt-claim as income you have received. For example, $10,000 credit card bill in which a compromise has been reached to settle the debt for $1400 is in theory a $8,600 personal net gain. The IRS may require you to report this as income you have received for the tax year even though you have not actually received the money. There is no way to deduct ~ sorry.

If you are insolvent you need to explain this to the IRS in one of two ways. 1) By filling out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness or 2) Attaching a detailed letter to your tax return explaining the calculation of your total debts and assets.

 

[jjbankhead]

Because you never paid the debt-claim in full, the IRS can treat a cancellation of a debt-claim as income you have received. For example, $10,000 credit card bill in which a compromise has been reached to settle the debt for $1400 is in theory a $8,600 personal net gain. The IRS may require you to report this as income you have received for the tax year even though you have not actually received the money. There is no way to deduct ~ sorry.

If you are insolvent you need to explain this to the IRS in one of two ways. 1) By filling out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness or 2) Attaching a detailed letter to your tax return explaining the calculation of your total debts and assets.

how does one deal with a cancellation of debt on your credit report. We received one of these for a car repossessed in 2006. The letter for charge off arrived in '07 stating it would need to be notified as income for that year's taxes, after doing so i am seeing a credit reporting in Nov. 08.

i can understand it being reported at the time of charge off but this was claimed in 2007 how can i still be getting reported for this in 2008???

can i contact the company and ask for this to be removed form my credit with any real hope of it being eliminated?

 

[TigerD]

can i contact the company and ask for this to be removed form my credit with any real hope of it being eliminated?

No. Their choice to forgive the debt, doesn't mean you didn't owe it. Or that you didn't fail to met your obligations.

DC

 

[Alex23]

For example, $10,000 credit card bill in which a compromise has been reached to settle the debt for $1400 is in theory a $8,600 personal net gain.

I can do that?

 

[Zigner]

I can do that?

What are you talking about?

 

[jjbankhead]

No. Their choice to forgive the debt, doesn't mean you didn't owe it. Or that you didn't fail to met your obligations.

DC

i understand they have the right to report it when it happens, or when they wrote it off as charged off debt, but how can they justify re-reporting it a year later?

it cannot continually be reported to my credit once its been settled. again the 1099 form was issued in 2007 and i reported it in 2007 as income when the form was received how can you say they are justified in re-reporting this a year later and i have no right to challenge that? (the second report was november of 2008).

 

[TigerD]

it cannot continually be reported to my credit once its been settled.

Wrong.

again the 1099 form was issued in 2007 and i reported it in 2007 as income when the form was received how can you say they are justified in re-reporting this a year later and i have no right to challenge that? (the second report was november of 2008).

What are you going to challenge? Credit reporting is credit reporting. It is accurate -- you just don't like it.

DC

 

[Country Living]

It seems jbankhead is hijacking this thread.

 

[TigerD]

It seems jbankhead is hijacking this thread.

You're right. I didn't even look at the name. Opps.

 

[cosine]

i understand they have the right to report it when it happens, or when they wrote it off as charged off debt, but how can they justify re-reporting it a year later?

it cannot continually be reported to my credit once its been settled. again the 1099 form was issued in 2007 and i reported it in 2007 as income when the form was received how can you say they are justified in re-reporting this a year later and i have no right to challenge that? (the second report was november of 2008).

Your form 1099-C should specify what the tax year is. That is the tax year it applies to and the filing year you have to report it as "income" on your tax filing. You also have to receive the 1099-C prior to February 1 of the year following the tax year it applies to. Did they send you 2 different 1099-C forms or just one? Is the credit report listing showing a different tax year than the 1099-C form?

 

[jjbankhead]

It seems jbankhead is hijacking this thread.

i just figured my 1099 issue is similar to the original author and most MBs i belong to direct you to look for similar topics that already exist to post questions rather than start 1000 threads about 1099 forms.

if preferred i'll gladly start another thread about 1099 for charge off debt.

 

[jjbankhead]

Your form 1099-C should specify what the tax year is. That is the tax year it applies to and the filing year you have to report it as "income" on your tax filing. You also have to receive the 1099-C prior to February 1 of the year following the tax year it applies to. Did they send you 2 different 1099-C forms or just one? Is the credit report listing showing a different tax year than the 1099-C form?

just one 1099c form that applied to my 2007 income, which i reported it to my taxes for that tax year.

however they are continuing to report this, i am now unable to settle the debt and according to debt collector my credit is forever affected, i don't see how that is possible.

 

[jjbankhead]

Wrong.


What are you going to challenge? Credit reporting is credit reporting. It is accurate -- you just don't like it.

DC

i am challenging that i can no longer settle this and it continues to be reported, are actually reading my posts?

this was settled a year before and they RE-REPORTED IT, I am not disputing the original report on my credit, I AM DISPUTING THE SECOND REPORT that happened A YEAR LATER.

 

[TigerD]

i am challenging that i can no longer settle this and it continues to be reported, are actually reading my posts?

this was settled a year before and they RE-REPORTED IT, I am not disputing the original report on my credit, I AM DISPUTING THE SECOND REPORT that happened A YEAR LATER.

Once again. I'll t y p e s l o w. M a y b e t h a t w i l l h e l p y o u u n d e r s t a n d .

1. START YOUR OWN THREAD.
2. START YOUR OWN THREAD.
3. YOU ARE WRONG. GET OVER IT.

DC